Gerber Scientific (GRB) is a supplier of automated manufacturing systems for sign making and specialty graphics, apparel and flexible materials, ophthalmic lens processing, and print and packaging industries.

Next earnings report due: This morning, Thursday, June 19.

Market cap: $265 million; EV: $305 million

Over the last 12 months, the company has generated less than $1Mn of free cash flow, although it has shown $14Mn in net income, indicating poor earnings quality. D&A is about equal to capex, so working capital has been significantly negative. For the FY ending Apr ’08, it is projected to earn $0.61 per share, compared to $0.58 in the previous year. But for the next year, the EPS projection is $0.74. This clearly looks too high to me, especially when the minimal free cash flow indicates that the company is stretching to even post the current numbers. I think $0.65 would be a more reasonable projection.

The stock has gone up to $11 from $9 in the last month, and I would not be surprised to see it re-trace this move soon.

Fair value $9 (14x calendar ’08 EPS estimate of $0.64).

Also check out my other piece today recommending LGTY as a long.

Disclosure: Author has a short position in GRB

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Ranjit Thomas

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